Waiting for Hugo Chavez: Theatrics and a languishing economy

Uncertain Venezuelans can anticipate a continued poor economy (and less bread for the bolivar), but more government circuses and theatrical antics

It has now been two months since Venezuela President Hugo Chavez departed Miraflores Palace (Venezuela’s White House) to undergo cancer surgery in Havana, Cuba.

Very little is known about Chavez’s health. So far the only proof of life presented by senior officials are reported visits to the hospital where Chavez is being treated and the appearance of documents said to be signed by the president. Chavez has not spoken to or been seen by the public. The government says that Chavez is making progress, but they are unable to overcome a growing presumption he will never again exercise real executive power.

Nevertheless, the show goes on in Venezuela. On February 4th, Chavistas - led by heir-apparent Nicolas Maduro and Assembly President Diosdado Cabello - celebrated the “heroism” of Chavez’s failed 1992 coup d’état. Like Fidel Castro’s failed 1953 uprising against the Batista regime, political mythology has converted a day of violence - over 100 died in Chavez’s aborted coup - into a day of national dignity. To the victor belong the spoils!

Last week the Chavistas displayed an official hat as part of concerted efforts to brand permanently the cult of “El Commandante” into the minds of Venezuelans. As New York Times reporter William Neumann observed, “Even in a country where political theater of the absurd is commonplace, the great cap kerfuffle took many Venezuelans by surprise.”

Yet, the distraction of the February 4th celebrations and the trivialities of the hat controversy were swiftly overshadowed by the February 8th decision to devalue Venezuela’s currency, the bolivar, by 32 percent, the first big economic decision taken in Chavez’s absence. Chavez reportedly authorized the move.

Prior to the devaluation, The Economist rated Venezuela’s bolivar as the globe’s most over-valued currency. According to its “Big Mac index,” a tasty burger was running at a whopping $9 and Caracas, Venezuela, is one of the world’s most expensive cities. Meanwhile, Venezuela’s rank in The Heritage Foundation/The Wall Street Journal’s annual Index of Economic Freedomcontinues to scrape along the bottom of the world (ranked 174 out of 177 countries scored).

While Maduro and company claimed the devaluation was needed to defend against speculators, opposition leader Henrique Capriles fingered the major culprits: out of control government spending, corruption, and foreign give-a-ways. Historically, devaluations have long been favored by populist and statist regimes as a way to impose the cruelest tax - inflation - while also monetizing their unsustainable debt burdens.

Economists predict that the devaluation will ease pressure on the fiscal deficit, cut the dollar value of domestic debt, and increase net state revenues. However, domestic purchasers will pay more for imported goods. Devaluation has reportedly sparked panic buying.

In the longer term, one can expect shortages. Growing inflation will eat away at the touted gains in purchasing power, especially for the poor. This will in turn apply new pressures on the Chavez regime if it faces new elections to replace the ailing president.

For now (por ahora), uncertain Venezuelans can anticipate a continued poor economy (and less bread for the bolivar), but more government circuses and theatrical antics.